Dharma Protocol
Basics * Went live (4-2019), Version 2 is now (9-2019) in close beta, bringing "a lending application built on top of Compound protocol." * DeFi * p2p decentralized lending; "is building tokenized debt on the blockchain, to support a variety of use cases including leveraged trading and loan products." * Startup Dharma has finished its series A fundraising round, raking in some $7M to develop a decentralized exchange (DEX); Dharma's DEX will compete with Genesis and BlockFi; the startup's DEX utilizes smart contracts and P2P loan finding services on its domain to offer rates claimed to be half of the traditional average; some 400 firms are said to be on the waiting list * "In Dharma's first week open to the public, users borrowed over 1M USD and lent over 1.4M USD. This volume was primarily denominated in Dai, as users levered up their ETH holdings." (According to Brendan from the team itself) dToken * Wrappers around Compound tokens, a la rDai, but for services to take profits. In this case, 10% of interest to Dharma. * From their blog (6-2-2020): "In February, we will deploy a new system of smart contracts, called dTokens, which are a wrapper around Compound cTokens Users will keep their full balance and all interest earned prior to the migration. Going forward, dTokens will retain one tenth of the interest earned in Dharma as a surplus that can be pulled by Dharma. Wrapping all deposits in dTokens is an important prerequisite to various features on our roadmap, including scalability solutions for payments and privacy enhancements." How Decentralized is Dharma? * Was classified Degree 1 DeFi on the HackerNoon rankings of 25-4-2019. "These DeFi products are non-custodial but use centralized price feeds, centrally initiate margin calls, centrally provide liquidity, centrally determine interest rates, and centrally administer platform developments & updates." * A BIG side note, is that the blog was written by Kyle J Kistner who is Chief Vision Officer at bZx. He gave his own project the highest ranking. What a surprise. * From the comprehensive blog post: "Custody: Dharma uses their open-source debt kernel smart contract described in the Dharma whitepaper. A Dharma-controlled address is designated as the ‘underwriter’. The debt kernel smart contract routes borrower collateral to the collateralizer contracts which, for the active duration of the loan, has custody of borrower funds. This aspect of the system is non-custodial. Dharma’s loan origination process involves contract code that is closed source. When a borrower or lender sends assets to a supplied address to initiate a Dharma loan, the receiving address contains a contract that interacts with a watcher script located on a centralized Dharma server. If the watcher process goes offline or fails to use the correct gas price when redirecting the funds, the assets can be stuck until the transaction is resubmitted, which is currently done by the Dharma team. While this entails a temporary potential loss of control of funds for Dharma users, as their assets may sit in the smart contract system waiting to be processed, the Dharma team cannot steal the funds as they do not control users’ private keys. At a future date Dharma plans to publish documentation allowing users to process transactions themselves if they so desire. Margin Calls: Dharma centrally monitors positions, centrally initiates margin calls, and supplies liquidity from their own personal liquidity pool. Price Feeds: Prices are imputed by Dharma. The price feed does not play a role in enforcing good behavior. Interest Rates: Interest rates on Dharma are centrally determined and currently subsidized by the operators of the platform in order to act as a loss-leader. Development: The development of the Dharma core contracts and underwriting contracts are undertaken by Dharma itself. The underwriting contracts are open source and loan origination contracts are closed source. Note: Dharma has recently revealed that it plans to move to a MakerDAO style liquidation mechanism. This would greatly increase the level of decentralization." Subsidy Cuts and Fee's * From DeFi Weekly #52 (27-11-2019) "So when/if KYC happens, Compound's defensibility may go down as liquidity moves away. The reason why I say that is that actors in DeFi don't actually care about the entity providing capital, as long as it provides capital at good rates. We saw this first-hand with Dharma when they started subsidising loan origination. After the subsidies were cut we saw a sharp 40% decline in liquidity. Orders with the P2P loan matching were also present but I wouldn't count it as a large reason." * From DeFi Weekly #57 (7-2-2020): "Surprise surprise, Dharma charges 10% fee on interest earned by their users! Assuming they're coming close to the end of their Series A money, they need to start showing some kind of revenue for Series B investors as great team and story doesn't necessarily fly anymore. Assuming there's ~$1m locked up, with it earning 5% on average, and a 10% fee that means most likely $5,000/year in revenue that they can book. I don't think those numbers are going to do anything meaningful to the bottom line for raising more money but it seems that becoming regulated and providing easy on-ramps could help that number go up. However like we've seen in crypto, either you go 100% decentralised or 100% regulated. In their current form, Dharma is a bit of a hybrid that's starting to lean more towards being regulated. I increasingly feel like Dharma is in a situation to where Veil was when they decided to fork Augur and become semi-centralised, semi-decentralised. You can already see the effects of alienating one group as crypto-natives are confused as to why you'd pay a 10% fee for "just a nicer UI" The team's response is that non-crypto natives will be happy to pay as they're receiving a higher interest rate. Having personal experience with attempting something similar, non-crypto natives literally get scared when they hear their money is touching crypto. If you ask anyone with money and say "what if you could earn much more then regular interest rates?" and when they ask how you just mention the word "crypto" their brain switches off. Crypto still needs social legitimacy in order for people to try it out. Regardless, I wish Dharma the best of luck as navigating crypto is no easy feat - especially when you're in the drivers seat." Team, partnerships, etc. * "Brendan" * Has attended the program of Startup Studio * Part of the WBTC community Category:Companies/Organisations